Redford faces budget woes, accelerates spending reductions

Alberta Premier Alison Redford said the government continues to make education and health care its priorities as it faces looming budget woes.

Photograph by: Larry Wong
, Edmonton Journal

EDMONTON - Premier Alison Redford warned Monday her government will cut quickly — but not uniformly — as it grapples with a major revenue shortfall due to lower-than-expected oil prices and a deep discount for oilsands bitumen.

After the first meeting of the new year with the Tory caucus, the premier said the Conservative government continues to make education and health care its priorities as it prepares the upcoming budget.

“Are we looking for across-the-board cuts? No, we aren’t,” she said in Edmonton.

But Redford said the government has accelerated its plan for “results-based budgeting,” a process that will see all government programs put under the microscope.

The original intent was to have all departments reviewed over three years.

“What we are talking about is doing the exact same work, but at a much faster pace,” she said.

The provincial government is falling short on its revenue projections because of the major discount for Alberta bitumen compared with the price for benchmark West Texas Intermediate (WTI) crude.

On Monday, the differential between the two prices reached nearly $42 a barrel, before dropping back to a $37 spread.

Redford and Finance Minister Doug Horner said the discount is costing the Canadian economy $75 million a day in lost revenue for energy producers, a problem caused by a lack of pipeline access to ship growing bitumen production to market.

In last spring’s budget, the province projected it would receive $5.7 billion in bitumen royalties. By mid-year, the government said it had received $2.2 billion in actual bitumen revenue, down $400 million from projections.

The government has also been side-swiped by an overly optimistic oil price projection of $99 for WTI. Oil closed Monday at $94.15 US a barrel in New York.

Without greater access to more export markets through new pipelines — to break the glut in the United States that is causing the pricing problems for Alberta bitumen — the government is facing an oil price differential that isn’t going away, the Tories warned.

The price discount has garnered attention across the country in recent weeks — Ottawa has also expressed concern with the issue — and Saskatchewan Premier Brad Wall said the differential is a national issue, even though it only directly affects an Alberta product.

“Those revenues benefit the entire country, whether they go indirectly to the rest of the country through the Alberta treasury, whether they are reflected in increased production and increased economic activity,” Wall said in an interview with the Herald.

“Obviously if producers are getting a price closer to WTI ... economic activity is going to increase.”

Wall, whose province is the second-largest oil producer in Canada, said he’s frustrated with the two provinces being locked into the lower American price, and the lack of progress in gaining access to the thirsty Asian market.

Saskatchewan’s premier said he’s not optimistic about the prospects of Enbridge’s proposed Northern Gateway pipeline that would move oilsands to the British Columbia coast, as the project faces stiff opposition in that province even as it goes through the federal review process.

“I’m not very hopeful about it,” Wall said.

In Edmonton, Redford said the provincial government is trying to alleviate the problem, but she didn’t mention Gateway or B.C.

“That’s why we’ve talked about a Canadian Energy Strategy, it’s why we’ve pushed so hard on Keystone, it’s why we’ve tried to put together and have had success in working with the government of Quebec with respect to a pipeline,” she said.

“It’s fundamental for us to be able to get our product to tidewater, to open up international markets and make sure we get a much better price for our resource.”

But the premier came under fire from opposition parties, who said the Tory government was blaming the oilsands discount for her own government’s fiscal mismanagement.

Wildrose finance critic Rob Anderson said the price differential is not a new issue for the government and it was clear last spring it would be a problem.

“They are being very deceptive in how they are messaging this,” he said.

NDP MLA David Eggen called the government “misleading” on the price discount facing Alberta’s bitumen.

“It’s something the government should have planned for,” said Eggen, whose party calls for higher oil royalties

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